Yixian E-commerce: Losses and acquisitions go hand in hand, how far is "L'Oréal China"?

Image source @ Visual China

Wen | Silver Arrow Finance

On April 12, Perfect Diary's parent company, Yixian E-commerce, announced that it had received a notification from the New York Stock Exchange that its American Depositary Shares (ADS) were trading below compliance standards.

According to NYSE regulations (802.01C), if the average closing price of a stock is less than $1 for 30 consecutive trading days, it is considered to be below the compliance standard and a warning letter is received. Upon notification, the company must allow its share price and average share price to rise above $1 within six months, or the NYSE will initiate suspension and delisting proceedings.

This means that if its stock price and average share price rise to more than $1 in the next 6 months, it will face delisting.

01 Revenue growth stalled, stemming from the "can't make ends meet" marketing expenses?

Roughly calculated, Yixian e-commerce, from the "myth" of the first beauty company with a market value of more than 100 billion yuan in China, to the "immortal stock" received the delisting warning of the New York Stock Exchange, before and after about a year, what is the reason for its change from "darling" to "abandoned"?

From the data in the financial report, we may be able to see some clues.

First of all, from the perspective of revenue, from 2019 to 2021, the revenue of Yixian E-commerce was 3 billion yuan, 5.2 billion yuan and 5.8 billion yuan, showing a growth trend. However, from the perspective of revenue growth rate, from 2019 to 2021, the revenue growth rate is 377.1%, 72.7% and 11.6%, which is enough to see that its revenue growth rate has fallen sharply.

Moreover, the net loss from 2020 to 2021 was 2.6 billion yuan and 1.5 billion yuan, respectively. Although the loss has narrowed, it can be seen that the loss is still its main theme, and it is difficult to turn from loss to profit in the short term. Perhaps, this is also one of the reasons why it is not optimistic in the capital market today.

So, why is it difficult for Yixian e-commerce to make a profit as the head player on the domestic beauty track? This is related to its "making a fortune" model.

We know that Perfect Diary, as the first brand created by Yixian e-commerce, has its popularity on social platforms such as Xiaohongshu, Weibo, Douyin, Kuaishou and B Station, and in the past few years, it almost belongs to the existence of "everyone knows everyone knows". Maybe you haven't used it, but you've seen ads, testimonials and reviews from top brass.

However, to be able to sweep the major social platforms, it must be inseparable from its marketing efforts.

Moreover, in terms of endorsement, not only did zhou xun, Wu Qingfeng, Ouyang Nana and other well-known stars were enabled, but also in that "show era", they also set their sights on the talent show with a large fan base and call purchasing power.

According to incomplete statistics, Popular players such as Zhu Zhengting of "Idol Trainee", Li Zixuan of "Creation 101", Xu Jiaqi of "Youth with You 2" and Yan Xujia of "Creation Camp 2019" have all had business cooperation with them. Although it is basically a short-term cooperation, the peak of idol traffic after taking advantage of the show has also brought a wave of enthusiasm to Perfect Diary.

However, there is no such thing as a free lunch. From the major platform KOLs, to celebrities and show people, such a large marketing effort also represents its high marketing costs.

From the financial report of Yixian E-commerce, from 2019 to 2021, its sales and marketing expenses were 1.25 billion yuan, 3.41 billion yuan and 4.006 billion yuan, respectively; the proportion of marketing expenses to revenue was 41.27%, 65.20% and 68.60%, respectively.

Moreover, from 2019 to 2021, the gross profit of Yixian E-commerce was 1.828 billion yuan, 3.364 billion yuan and 3.899 billion yuan, corresponding to the gross profit margin of 63.61%, 64.28% and 66.76%. From the perspective of gross profit margin, the gross profit margin that increases year by year is conducive to its profitability.

However, in 2020 and 2021, even if the gross profit margin increases significantly, it will be lower than the proportion of marketing expenses to revenue. That is to say, the sales and marketing expenses alone swallow up all the gross profits, and there are still vacancies. This also shows that with the expenditure of marketing expenses alone, Yixian E-commerce has no possibility of profitability.

Moreover, for consumers, in 2021, if consumers spend 100 yuan to buy their products, 68.6 yuan will be paid to marketing advertisements, that is, brand premiums, not the value of the products themselves. However, is the brand represented by Perfect Diary under Yixian E-commerce worth such a high product premium?

02 The "encirclement and suppression war" under the upgrading of domestic goods + the reduction of the dimension of big names, the intensification of market competition?

In terms of brand value, the current Yixian e-commerce can not support such a high "premium".

The most important thing for a product is whether its core technology can be copied. However, according to the Tianyancha APP, Yixian E-commerce currently has 49 patents under its name, of which 48 are appearance patents, and the only utility model patent is "a new type of makeup powder box".

This also makes the beauty matrix represented by the perfect diary easy to be copied and imitated.

Moreover, Perfect Diary has been out of the circle with "big name flat replacement", since it is "flat replacement", this part of the consumer is likely to pursue cost performance; however, perfect diary is currently so high premium, so that There are a bunch of perfect diary flat replacements on Xiaohongshu and Pinduoduo, such as domestic brands Orange, Ukiss Youkesi, affordable Korean makeup The Face Shop, Holika and so on.

The "encirclement and suppression" of these brands for the perfect diary has undoubtedly robbed the basic disk of the sinking market of Yixian e-commerce. At the same time, some consumers face the perfect diary products, and turn to seek "Gui ti" under the entanglement of liking the color system but the texture does not conform to themselves.

Of course, this also represents the trend of the domestic beauty industry, consumers have not been easily brainwashed by marketing, began to have their own ideas and needs, to the "cost performance" and "efficacy" of the two extremes.

However, "cost performance" needs to reduce the brand premium and gross profit, and more textured "efficacy" requires a lot of research and development costs, which are temporarily missing by Yixian e-commerce.

These brands are the hot brands in the past two years, and in 2021, the double eleven flower Xizi has covered the perfect diary on Douyin, and Winona has quickly gone out of the circle with sensitive skin care and Quadi relying on Bloomage Bio's hyaluronic acid technology, becoming a hot "hot fried chicken" in the beauty and skin care circle.

In terms of international beauty brands, take L'Oréal Group, the target of Yixian E-commerce, L'Oréal Group has been committed to research and development from the beginning, and the data shows that it has nearly 4,000 R&D personnel worldwide, 20 R&D centers with different directions, and L'Oréal's R&D expenditure in 2020 alone is nearly 1.2 billion US dollars. In addition, L'Oréal's R&D rate remained stable at 3%.

Moreover, as mentioned above, the current consumers have no longer purchased because of "advertising" and have moved towards the road of "re-purchase with effect". This is very friendly to the international big names with time and technology precipitation. In particular, beauty and skin care companies rooted in China, such as L'Oréal Group, are now on the road of marketing for performance.

Just as during last year's Double Eleven period, more than 400 yuan of makeup products achieved an overall growth of more than 40%, especially international high-end brands such as Estée Lauder and YSL performed better. Moreover, during this year's 3.8 promotion, even if the sales of tmall's official flagship store, a key makeup brand of the Tao family, fell by 21%, the sales of high-end makeup brands still maintained a counter-trend growth of 10%.

It can be seen that at present, Yixian e-commerce is undoubtedly a internal and external problem, not only to face the wave of consumers' "ingredient demand" and "texture upgrade", the loss of users brought about by the priority transformation of some domestic brands; but also to face the online marketing competition under the "dimensionality reduction blow" of the ingredients of international big brands such as L'Oréal Group.

In the future, the road of Yixian e-commerce may be more difficult.

03 Yixian e-commerce, is the story of "China's version of L'Oréal" still easy to tell?

However, Yixian e-commerce is also gradually transforming, from beauty to the road of "beauty + skin care", and is constantly expanding its product matrix through acquisitions, becoming more and more like "China's version of L'Oréal".

According to overseas media reports, in March 2021, British retailer Space NK sold its wholesale subsidiary Space Brands, making a profit of nearly 687 million yuan, and the buyer was Yixian E-commerce, the parent company of Chinese beauty brand Perfect Diary. However, this news has not yet been officially released.

However, in recent years, Yixian E-commerce has been making up for its own territory in the beauty and skincare industry through acquisitions, to benchmark L'Oréal from a single brand to a large group.

As of now, according to public information, Yixian E-commerce has perfect diary, little Odin, Completed Son Xinxuan, Galénic French Coran Li, DR. Wu (Chinese mainland business), Eve LOM, Kevyn Aucoin, Picker Bear and One An State nine brands have covered makeup and skincare from the public to the mid-to-high end.

The matrix created by these brands has initially taken shape, and it has also strengthened the anti-risk ability of Yixian e-commerce.

According to Euromonitor data, it is expected that in 2025, skin care products will sell nearly 490 billion, while makeup is only about 130 billion, less than one-third of skin care products. It can be seen that the future potential of the skin care market.